4) Relative Over-population
Marx then turns to another factor causing the rate of profit to rise , whose importance is usually overlooked, but whose significance is huge. The extent of its significance can be judged by Marx's comment that this one feature alone nullifies the tendency for the rate of profit to fall. The factor is the creation of a relative over population, resulting from the continuous rise in productivity, and the generation of increasing masses or relative surplus value. In fact, this relative over population cannot be understood separate from this increasing mass of relative surplus value, that is its counterpart.
The relative over-population causes the rate of profit to rise because of two factors. The first is usually considered, but the second, more important cause, is frequently ignored. The first cause is that the existence of a relative over-population, in so far as it takes the form of unemployed workers presses down on wages, and thereby raises the rate of surplus value. But, the second cause is actually far more powerful.
“...new lines of production are opened up, especially for the production of luxuries, and it is these that take as their basis this relative over-population, often set free in other lines of production through the increase of their constant capital. These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high. Since the general rate of profit is formed by levelling the rates of profit in the individual branches of production, however, the same factor which brings about the tendency in the rate of profit to fall, again produces a counterbalance to this tendency and more or less paralyses its effects.” (p 237)
This is a process I have described elsewhere. And, in fact, what makes this so important is that although Marx says that these new lines are frequently in luxury production, it always arises that what were once luxuries increasingly become necessities, incorporated into the normal basket of wage goods that go into the determination of the value of labour-power. These commodities, which, as Marx says, have very high rates of profit, because of their low organic composition, become increasingly important components of the total social capital, and so, even as their very high rates of profit decline, they have the effect of raising the average rate of profit in the economy, in the way Marx describes.
This has been true of a whole series of commodities that started out as luxuries, only once consumed by the rich, ranging from motor cars, through to electronic consumer durables and from foreign holidays to mobile phones. Marx refers to wages in these new lines being below the average, but, in fact, in more recent times, the opposite has been the case. It is frequently the case that the labour employed in these new lines of production is complex labour, whose product is many times that of simple labour, which is yet another powerful factor increasing the rate of profit.
That can be seen by looking at, for example, the increasing importance of things such as leisure and entertainment in the average household consumption, and these industries are characterised by highly complex labour producing huge amounts of value by comparison to simple labour, and consequently producing huge amounts of surplus value in the process. A look at the value of the product of an hour's labour by a Premier League footballer, or by a prominent actor, comedian or singer etc. demonstrates the point. But, the same is true in relation to the product of a computer games programmer, software designer, celebrity chef and so on.
The basis of this process is fairly straightforward, and flows from what Marx has already outlined. The tendency for the rate of profit to fall arises from the growing social productivity of labour, such that a given mass of labour processes a growing mass of material. But, within this process, a growing mass of profit leads to a growing total mass of capital, including a growing mass of variable capital. But, within each industry, there comes a point where the falling rate of profit creates strong incentives for its own expanding mass of profit to be used not for the further expansion of that industry, but to be utilised in the creation of some new industry. Marx described this centrifugal tendency of capital counteracting the tendency towards further concentration and centralisation in Capital I.
The process of reproduction within the industry ensures that it continues to be able to reproduce its own variable and constant capital, so that it is able to continue to produce on at least the same scale. But, suppose the percentage organic composition of capital in this industry is 80 c: 20 v. Then, each £1,000 of profit will employ four times the value of constant capital as variable capital, £800 to £200. But, suppose the available surplus value is used to invest in some new line of production, where the organic composition is instead 20 c : 80 v. Now, for every £1,000 of surplus value invested, £800 is invested in living labour, and only £200 in buying constant capital. In short the same amount of surplus value employs four times as much labour-power as if it was invested in the previous line of business. This is a powerful force, soaking up the relative overpopulation “freed” from the previous occupation. What is more, the surplus value produced in the original industry continues to be pumped out, in equally large masses each year, and is thereby available for investment in this new industry year after year. Moreover, in this new industry, with the same rate of surplus value, this lower organic composition of capital produces itself proportionately larger amounts of surplus value.
For every £1,000 invested in the old industry, only £200 of surplus value is produced, with a 100% rate of surplus value, But, in the new industry, £1,000 of investment produces £800 of surplus value. As Marx describes, this much higher rate of profit, in the new industry, thereby acts increasingly to raise the average rate of profit.
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